It is around them, meaning they will get affected thus the rest happens in their mind and I have rules and conditions on how Kyouka does it. The way you just said it, sums it all up. 

Just remember, preparing a room is tedious due to rune set ups, it takes time and art is never meant to be rushed.

I guess in the guild, Kyouka in a sense is multi-purpose, "The Ambush." "The Torturer". "The Intel extractor.", that's the main purpose of her ability, it is to send the prey into paranoia, a world of Limbo(Hell) facing their fears in that maze.

Those who are not in the room, good they will not be affected, step into the room does not guarantee your safety, you might freak out in a sense but you are safer compare to the targets because Kyouka's illusions are not directed to you and her only loyalty is in the guild so, her rules by using illusions is not to have her guild mates affected.

So to put it this way, if your name is not Kaiser, Valruk, Aracia and the rest that are part of the guild, you are pretty much f@cked by Kyouka's illusions.